Sunoco 2006 Annual Report Download - page 36

benefit plans were proportionally increased in accordance with the terms of those re-
spective agreements and plans. Share and per-share data (except par value) presented for
all periods reflect the effect of the stock split.
The Company has paid cash dividends on a regular quarterly basis since 1904. The Com-
pany increased the quarterly dividend paid on common stock from $.15 per share ($.60 per
year) beginning with the third quarter of 2004, to $.20 per share ($.80 per year) beginning
with the second quarter of 2005, to $.25 per share ($1.00 per year) beginning with the sec-
ond quarter of 2006 and to $.275 per share ($1.10 per year) beginning with the second
quarter of 2007.
The Company repurchased in 2006, 2005 and 2004, 12.2, 6.7 and 15.9 million shares, re-
spectively, of its common stock for $871, $435 and $568 million, respectively. In Sep-
tember 2006 and July 2006, the Company announced that its Board of Directors had
approved additional share repurchase authorizations totaling $1 billion and $500 million,
respectively. At December 31, 2006, the Company had a remaining authorization from its
Board to repurchase up to $943 million of Company common stock from time to time de-
pending on prevailing market conditions and available cash.
Critical Accounting Policies
A summary of the Company’s significant accounting policies is included in Note 1 to the
consolidated financial statements. Management believes that the application of these poli-
cies on a consistent basis enables the Company to provide the users of the financial state-
ments with useful and reliable information about the Company’s operating results and
financial condition. The preparation of Sunoco’s consolidated financial statements re-
quires management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosures of contingent assets and li-
abilities. Significant items that are subject to such estimates and assumptions consist of re-
tirement benefit liabilities, long-lived assets and environmental remediation activities.
Although management bases its estimates on historical experience and various other as-
sumptions that are believed to be reasonable under the circumstances, actual results may
differ to some extent from the estimates on which the Company’s consolidated financial
statements are prepared at any point in time. Despite these inherent limitations, manage-
ment believes the Company’s Management’s Discussion and Analysis of Financial Con-
dition and Results of Operations and consolidated financial statements provide a
meaningful and fair perspective of the Company. Management has reviewed the assump-
tions underlying its critical accounting policies with the Audit Committee of Sunoco’s
Board of Directors.
Retirement Benefit Liabilities
Sunoco has both funded and unfunded noncontributory defined benefit pension plans
which provide retirement benefits for approximately one-half of its employees. Sunoco also
has postretirement benefit plans which provide health care benefits for substantially all of
its retirees. The postretirement benefit plans are unfunded and the costs are shared by
Sunoco and its retirees. The levels of required retiree contributions to these plans are ad-
justed periodically, and the plans contain other cost-sharing features, such as deductibles
and coinsurance. In addition, in 1993, Sunoco implemented a dollar cap on its future con-
tributions for its principal postretirement health care benefits plan, which significantly
reduces the impact of future cost increases on the estimated postretirement benefit expense
and benefit obligation.
The principal assumptions that impact the determination of both expense and benefit obli-
gations for Sunoco’s pension plans are the discount rate, the long-term expected rate of
return on plan assets and the rate of compensation increase. The discount rate and the
health care cost trend are the principal assumptions that impact the determination of ex-
pense and benefit obligations for Sunoco’s postretirement health care benefit plans.
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